Rural Electric Cooperatives and Coal

Rural electric cooperatives (RECs), which receive funding support from the federal Rural Utilities Service, play a major role both in the proposed expansion of coal-fired electrical generating capacity, and in the lobbying and publicity efforts that promote the buildout. RECs receive 80 percent of their power from coal, significantly above the national average of 50 percent.

Existing Coal Plants
Currently, RECs own and operate about 44,000 megawatts (MW) of total generating capacity, most of which is coal-fired. Collectively, they represent nearly 5 percent of the country’s total generating capacity.

Between 2001 and 2008, the Rural Utilities Service loaned $1.3 billion for new coal plants.

Proposed Coal Plants
Since 2000, the RECs have proposed a number of coal plants. As of the Fall of 2009, the list included the following:

Operating or in Construction
 * Dry Fork Station (Wyoming) – 385 MW
 * Hempstead (Arkansas) - (120 MW coop ownership of 600 MW plant)
 * Marion Plant (Illinois) – 120 MW
 * Plum Point Energy Station (Arkansas) - (120 MW involvement by two coops in a 1330 MW plant)
 * Sandy Creek Plant (Texas) - (225 MW coop ownership of 900 MW plant)
 * Spurlock Power Station Unit 3 (Kentucky) – 268 MW
 * Spurlock Power Station Unit 4 (Kentucky) – 278 MW
 * Spiritwood Industrial Park (North Dakota) – 40 MW

Active Proposals


 * Basin IGCC plant (unknown location) – 630 MW
 * Coleto Creek expansion (Texas) - 650 MW
 * Hugo 2 (Oklahoma) – 750 MW
 * Kemper Project (Mississippi) - (20% coop ownership of 600 MW being negotiated)
 * Smith Station (Kentucky) – 278 MW
 * Surry County Plant (Virginia), also known as "Cypress Creek"
 * Washington Plant - Georgia
 * Wolverine Clean Energy Venture (Michigan) – unknown capacity

Cancelled or On-Hold Proposals
 * Bonanza Power Plant addition (Utah) – 86 MW
 * Dairyland Chickasaw/Mitchell Plant (Iowa) – 400 MW
 * Elkhart Proposal (Illinois) – 400 MW
 * Healy Clean Coal Plant (Alaska) – 50 MW
 * Highwood Generating Station (Montana) – 250 MW
 * Holcomb Expansion (Kansas) – 2100 MW
 * Matanuska Power Plant (Alaska) – 100 MW
 * Milton Young 3 (North Dakota) – 500 MW
 * NextGen Energy Facility (Sorth Dakota) – 700 MW
 * Norborne Baseload Plant (Missouri) – 660 MW
 * Seminole 3 (Florida) – 750 MW
 * Unnamed Tri-State Plant (Colorado) – unknown capacity

Cobb EMC Controversy
In October 2007, several members of Georgia's Cobb EMC filed suit against the cooperative’s board members. The suit alleged “gross mismanagement, breach of fiduciary duty, self-enrichment and a waste of corporate assets, related to the relationship between Cobb EMC and Cobb Energy.” Cobb Energy was created in 1997 as a for-profit entity and would be responsible for the day-to-day operations of Cobb EMC after Cobb Energy and Cobb EMC signed a 40-year operating contract. The contract allowed Cobb Energy to sign an 11 percent markup for running Cobb EMC. The plaintiffs argued that Cobb EMC board members were moving millions of dollars in EMC money to Cobb Energy. Judge Stephen Schuster of the Cobb County Superior Court heard arguments in the case and in December 2008, after nearly 14 months of litigation, a settlement agreement between the two parties was reached, however Cobb EMC board was not following through with the order to make board elections more democratic. The plaintiffs appealed the case to the Georgia Court of Appeals, and on April 14, 2010, the Georgia Court of Appeals ruled unanimously in favor of the plaintiffs finding that the bylaw changes focusing on elections and proxy voting were in violation of the 2008 settlement agreement between the plaintiffs and Cobb EMC.

In April 2009, the Cobb County district attorney's office and the Georgia Bureau of Investigation (GBI) executed a search warrant related to possible theft and racketeering among Cobb EMC CEO Dwight Brown and board members including Larry Chadwick, David McGinnis and Frank Boone. GBI agents confiscated files from Cobb EMC headquarters and the personal residences of several board members. The results of this investigation are not yet known. In addition, in November 2009 attorney Charles Gabriel filed a class action lawsuit against Cobb EMC seeking $300 million plaintiffs argue Cobb EMC owes its members.

Rejection of Highwood Station Loan
In February, 2008, the RUS told Southern Montana Electric Generation and Transmission Cooperative that it would not provide financing for the Highwood Generating Station. The RUS cited rising construction costs and the lack of demand for the plant's power.

Suspension of Rural Utilities Service Financing
In February, 2008, the Rural Utilities Service suspended financing to coal plants.

In the letter to Representative Henry Waxman announcing the suspension, RUS Administrator James Andrew wrote that the suspension would continue "until the Agency and OMB develop a subsidy rate sufficient to cover the risks associated with the construction of new generating plants."

At the time of the suspension, the RUS was considering applications for loans totalling $1.2 billion, of which three were for RECs involved in minority shares of the privately-funded plants:
 * Kansas Electric Power Cooperative, 30 MW (3.5%) of a 850 MW plant, $55 million.
 * East Texas Electric Cooperative, 50 MW (7.7%) of a 650MW Plant, $102 million.
 * East Kentucky Power Cooperative, 278 MW, $685 million.
 * Prairie Power (Illinois), 130 MW (8.2%) in two plants totaling 790 MW, $385 million.

These projects are seeking alternate sources of financing, including loans from the National Rural Utilities Cooperative Finance Corporation (CFC). CFC loans are typically at higher interest rates than RUS loans. East Texas Electric Cooperative has also filed a federal lawsuit against the RUS over the financing moratorium.

Structure of the Rural Electric System
The rural electric system consists of about 900 distribution coops, which maintain local powerlines, and several dozen generation and transmission coops (G&Ts), which operate power plants. Both distribution coops and G&Ts operate as non-profits and enjoy tax-exempt status. In most states, their rates are exempt from oversight by utility regulators.

The rural electric system receives financing assistance from the Rural Utilities System (RUS), a division of the Department of Agriculture formerly known as the Rural Electrification Administration (REA). That assistance consists of loans and loan guarantees.

Colorado rural electric cooperative pushing efficiency over coal
Delta Montrose Electric Association in Colorado is a standout rural electric cooperative in terms of its prioritization of efficiency over coal. DMEA has established a goal to be the leader in efficiency among the nation's cooperatives, including becoming the benchmark in "environmentally feasible projects and distributive energy technology." DMEA has also set a goal of attaining a 10 percent share of its territory's heating and air conditioning market by 2010 by promoting energy efficient technologies. In addition, DMEA aims to deliver energy savings to its customers by 2010 that are equivalent to 25 percent of its 2000 electricity sales revenue.

East Kentucky Power Cooperative cancels Smith Plant, calls for renewables and energy efficiency
On Nov. 18, 2010, the East Kentucky Power Cooperative (EKPC) entered into an agreement with Kentuckians for the Commonwealth, Kentucky Environmental Foundation, the Sierra Club, three individual co-op members, the Kentucky attorney general, and Gallatin Steel (EKPC’s biggest industrial customer) to halt plans for EKPC's proposed Smith Station by abandoning the permits needed to proceed with construction. The cooperative also committed $125,000 toward a collaborative effort in which the public interest groups, EKPC and member co-ops will work together to evaluate and recommend new energy efficiency programs and renewable energy options.

According to Kentuckians for the Commonwealth, "a number of factors contributed to the decision to not to move forward with the proposed plants, including lower than expected demand for electricity, a moratorium imposed by the Bush Administration on low-cost federal loans for coal-burning power plants, and sharply rising costs associated with building and operating new coal plants. In June 2010, the Public Service Commission opened an investigation to determine if proceeding with the $819 million project was cost-effective and necessary. Studies commissioned by the public interest groups participating in this agreement concluded that a combination of clean energy technologies would be a cost-effective way to meet EKPC’s demand, while also reducing financial risk to customers, generating jobs throughout the region, and benefiting health and the environment."

Political Muscle and Orientation
Several factors combine to give the REC system considerable clout at both state and federal levels:
 * As member-owned and run cooperatives dispersed across in hundreds of rural and suburban counties, the RECs enjoy a unique connection to millions of citizens at the grassroots level. That connection is enhanced by the magazines and radio shows sponsored by the cooperatives in each state, which do not shy away from presenting the stance of coop management on issues such as global warming and environmental regulation.
 * Since its origins as a New Deal program created by Franklin Roosevelt, the REC movement has maintained a strong connection and identification with the Democratic Party. The effect is to neutralize what might otherwise be the tendency of many Democratic legislators to lean toward pro-environment efforts.
 * The National Rural Electric Cooperative Association (NRECA) maintains a strong lobbying presence in Washington.
 * The REC movement benefits from the disproportionate representation of rural states in the United States Senate.
 * The location of coal production in rural states tends to match the greatest concentration of RECs. This coincidence means that RECs are relatively more reliant on coal generation that utilities on either coast; it also means that RECs tend to line up politically with coal interests.

Touchstone Energy
Touchstone Energy Cooperatives is a national alliance of over 640 rural electric cooperatives in 46 states. Collectively, Touchstone’s 30 million customers make it by far the largest utility in the United States, with over $97 billion in generation, transmission, and distribution assets. As a functional matter, Touchstone does not operate as a single financial or electrical dispatching entity. However, it does promote a unified brand for rural electric cooperatives and a coherent advertising program. In political matters, Touchstone appears to defer to the NRECA and to the various state rural electric associations.

Support for Climate Skeptics
In June, 2006, Stanley R. Lewandowski, Jr., General Manager of Intermountain Rural Electric Association (IREA) in Colorado, wrote to fellow REC members urging opposition to a carbon tax or a cap and trade program. Lewandowski reported that IREA has donated $100,000 to Dr. Patrick Michaels, a leading global warming skeptic.

REC reform and activist groups
In February 2010 a new co-op reform organization called Co-opConversationsUSA.org launched a website that will serve as a public education tool for groups around the country. A press release on the issue notes, "One of the initial goals of the national effort will be to showcase models of a ‘Member Bill of Rights’ that all local cooperatives can adapt to help ensure members full access and transparency to their co-op. The ‘Member Bill of Rights’ will be one of the initial actions that reform members can introduce to their co-op board of directors."


 * http://co-opconversations.org/
 * http://PEC4u.org
 * http://cobbEMCTruth.com

Related SourceWatch Articles

 * Global warming skeptics
 * U.S. coal industry lobbyists 2008

External Resources

 * Rural Coop Litigation News
 * Staying off the troubled coop list
 * Jim Cooper, "Electric Co-operatives: From New Deal to Bad Deal?" Harvard Journal on Legislation, 2008
 * "The Coal Rush and Public Power," (webinar by Sierra Club and Energy Foundation)
 * "The State of Play of Public Power, (webinar by Rob Church of ACORN)
 * Anne Butterfield, "Butterfield: Wagons firmly circled," Daily Camera, March 26, 2009